The Company Director Checklist - Italy

Transcription

1 COLONNELLI DE GASPERIS STUDIO LEGALE The Company Director Checklist - Italy Contact: mcolonnelli@colonnellilaw.com Via G. Morone Milan Via del Corso Rome Tel Fax info@colonnellilaw.com 1

2 INTRODUCTION This Company Director Checklist has been designed as a practical guide to the main obligations and procedures of a listed public company under the Italian legislative decree 24 February 1998, no. 58 (the Italian Financial Law), the Italian civil code (the ICC), the regulation no issued by CONSOB (the Italian Stock & Exchange Commission) (the CONSOB Regulation), the Italian code of conduct of listed companies issued on 2006 by the Comitato per la Corporate Governance Borsa Italiana S.p.A. (the Corporate Governance Committee of the Italian Exchange) (the Code of Conduct). It is a general guide that is not intended to be a substitute for professional advice. However, it highlights to a listed company director those situations where professional advice may be required. Italian stock companies may opt for a one-tier system with a board of directors or a two-tier system with a management board and a supervisory board. This checklist is mainly tailored for members of the board of director (one-tier system) and for members of the management board (two-tier system), and not for members of the supervisory board (two-tier system). It applies to a Italian public company that is listed on the Italian stock exchange. Disclaimer: This Checklist is general and should not be relied on for advice. Colonnelli de Gasperis Studio Legale and the authors disclaim any liability in respect of anything done in reliance on this publication. This Checklist was prepared with directors of an Italian listed company in mind. Some obligations or statutory requirements may vary in relation to proprietary companies. However, specific legal advice and, where appropriate, accounting and tax advice should be sought in all circumstances. 2

3 Before Appointment Action/Issue Comment/Notes 1. Understand Why you have been approached and what you are expected to contribute; the remuneration package on offer; existing corporate governance procedures; the requirements of integrity, professionalism and independence you need to have pursuant to the by-laws of the company, the ICC and the Italian Financial Law; incompatibilities and termination events set forth by the ICC; insurance policy package. Some prerequisites to accept an appointment should be that: you own the requirements of integrity, professionalism and independence required by the law (Art of the ICC and Art. 147-quinquies first paragraph of the Italian Financial Law and Ministerial Decree 30 March 2000, No. 162) and, if you are a independent director, the other specific requirements set forth by the law (Art. 147-ter fourth paragraph of the Italian Financial Law); you do not hold a position incompatible with the role of director, i.e. you can not be a person under care, a incompetent person, a person condemned not to hold public offices or managing roles (Art of the ICC); you have time and something worthwhile to contribute (Artt. 1.C.2., 1.C.3. and 2.C.2. of the Code of Conduct); you can meet the expectations for your contribution; the remuneration package meets your expectations; adequate corporate governance procedures are in place to ensure you can perform and are protected. 2. Meet CEO/CFO/COO; other directors (including recently retired directors); senior management team; statutory auditors; external auditor; company lawyer. 3 Obtain a briefing on the history, strategy and ownership structure of the company; understand major drivers of performance and key performance indicators; get a SWOT analysis of the company; get background/resume on other directors and key members of management team; understand relationship and roles within management team; understand who are the key suppliers and customers; understand status of relationship with employees and unions; obtain an industry briefing; get the inputs and perceptions by the statutory auditors and the external auditor on historical accounts and disclosure issues;

4 understand key legal relationships, any past or current litigation and issues with compliance and regulators. 3. Review Past three years historical accounts, including the reports prepared by the directors, the statutory auditors and the external auditor; company's by-laws; board papers and minutes of past three years; press clippings for prior year; reports on corporate governance and ownership structure (Art. 123-bis of the Italian Financial Law). Have any abnormal losses and profits explained; review accounts for trends; reliability of the value of fixed and intangible assets; review the by-laws for any restriction on your powers as a director or any shareholder specific provisions; review board papers and minutes and reports on corporate governance and ownership structure to get a feel for current issues; review company announcements to ensure the company has full and timely made disclosure to the market. Appointment 4. How are you appointed, by whom and for how long? Your appointment requires a resolution of the shareholders meeting (one-tier company) (Art first paragraph of the ICC) or a resolution of the supervisory board (two-tier company) (Art novies third paragraph of the ICC) and your acceptance, which can be formalized either by a letter or in the minutes of the first board of directors meeting following your appointment; besides, within 30 days of the notice of your appointment, you have to request the companies register of the place where the company has its registered office to register your appointment (Art fourth paragraph of the ICC); the by-laws of the company may provide that the directors are appointed based upon lists of candidates filed by shareholders holding a certain stake in the company (the minimum stake can not be higher than 2.5%) and may provide for other rules for the appointment of the directors (Art. 147-ter of the Italian Financial Law); you can be appointed for a maximum term of three financial years and your office terminates at the date of the shareholders meeting called to approve the financial statements of the last financial year of your appointment (Art second paragraph of the ICC); the appointment can be renewed, unless the by-laws provide otherwise (Art third paragraph of the ICC); 4 If your appointment is invalid (e.g. due to the lack of the requirements of integrity, professionalism and/or independence), but you actually acted in the name and on behalf of the company after the registration of your appointment in the companies register, you will be treated vis-à-vis third parties as if your appointment had been valid, until your appointment is revoked or until you resign from your office, unless the company proves that the third parties were aware of the invalidity of your appointment (Art fifth paragraph of the ICC); to register your appointment in the companies register you need to have an Italian fiscal code; it is debated which facts qualify as just cause. According to case law: (i) not only the breach of your duties qualifies as just cause, but also an objective fact which affects the fiduciary and cooperative relation between you and the company (e.g. a long lasting disease or the impossibility to perform your duties, a lawsuit vis-à-vis the company started by a director who was fired as executive/employee of the company) and (ii) a bare economic convenience of the company, a corporate restructuring, the mere dissent of the director on certain facts related to the management of the company do not qualify as just cause ; at the time of your appointment and ahead of your acceptance,

5 5. What are the most important provisions regarding your remuneration under Italian law? Ongoing Duties 6. Think About: the appointment can be revoked by the shareholders meeting at any time, provided that you are entitles to seek damages if the revoke is without just cause (Art third paragraph of the ICC). The by-laws or the shareholders meeting set forth your individual remuneration or the overall remuneration of you and the other directors. In the latter case, the board of directors, upon consultation with the remuneration committee and with the board of statutory auditors, determines your individual remuneration (provided that the remunerations of all directors can not exceed the overall remuneration set forth by the by-laws or the shareholders meeting). You can be remunerated, in whole or partially, with part of the profits of the company or with stock options (Art first, second and third paragraph of the ICC). the quantity and quality of information that has been provided to you by the company; the information that you have obtained from independent sources, and how it compares with the information provided by the company; whether there are any gaps in the information you have been provided or you have obtained; your impressions of the company s team of officers and advisers; the quantity and quality of the flow of information given by the company to the market. 5 you have to disclose to the shareholders meeting the office of director and control offices you have in other companies, if any (Art septiesdecies third paragraph of the ICC). Your remuneration, once determined in the by-laws, by the shareholders meeting or by the board of directors, can not be modified without your consent. Often, your remuneration has two components, one fix and one variable (profits, stock options). Your remuneration, together with the remunerations of the other directors, the plans for the remuneration of the members of the board of directors based on financial instruments and the agreements re the indemnities to be paid to you and the other directors upon termination of service must be disclosed to the market (Art. 114-bis and 123-bis of the Italian Financial Law and Art. 78 of the CONSOB Regulation). The board of directors appoints among the directors the members of the remuneration committee which proposes to the board your remuneration and the remuneration of each director (Art. 7. of the Code of Conduct). In particular, watch out for: the dominant director do any of the directors (or officers) exercise undue control over the company s assets or affairs? Inactive non-executive directors; inactive committees created by the board (internal control, remuneration, appointment, etc.), as provided by the Code of Conduct (Artt. 5 and ff.) Do the non-executive directors act as a check on the actions of the management and executive directors? Do the committees advice and inform the board properly and timely about the relevant matters? General management, taking into account, in particular, information received from the managers, and periodically comparing the results with those planned;

6 lack of independence: check, at least once a year, the independence of non-executive directors, placing more emphasis on substance rather than the form and taking into account the criteria set forth by the Code of Conduct (Artt. 3.C.1. and 3.C.4); inadequate internal control - does the board function effectively? Are reporting procedures adequate? Are each of the directors and the company's shareholders and the market sufficiently informed about the company's operation and financial status? Are concerns dealt with in a timely and effective manner? 7. To whom are your duties owed? Your duties are to act in the best interest of the company and, if there is any reason to suspect that the company may be unable to pay timely its debts, the creditors; unless otherwise stated in the by-laws of the company, you do not have a legal duty to act in the interest of the other constituencies of the company unless to do so in the interest of the company. See the following sections for a discussion of your duties. 8. What is the duty of skill? 9. What is the duty of care and diligence? Generally, the duty of skill is the capacity to manage the company, taking into account the size and business of the company, and the technical knowledge necessary to resolve upon the transactions of the company. You are required to act with the diligence required by the nature of your role and by your specific skills (Art first paragraph of the ICC). You are required to exercise your duties with the degree of care and diligence that a diligent person would exercise if he/she: were a director in the company s circumstances; occupied the same office and had the same responsibilities within the company as a director. You have to use your best efforts to promote the purpose of the company and to comply, and procure that the company complies with 6 Consider: According to the majority of case law and scholars, you are supposed to know the fundamental and essential rules of the management activities, such as accounting rules; however, you do not need to be an expert in accounting and financial matters and in any sectors in which the company is active. Besides, according to certain scholars, the courts, when evaluating whether you duly fulfilled your duty of skill, have to take into consideration specifically your personal skills. As best market practice, your skills should be indicated in your curriculum to be submitted to the shareholders meeting before your appointment. size of the company; activities of the company; materiality and conditions of the transaction at issue; time available for the director to make the decision; composition of the board; distribution of work within the board; amount and quality of information given to/taken by you to make

7 the laws and the by-laws. You must act in an informed way and are entitled to ask to the delegated bodies/individuals to report to the board the information concerning the management of the company (Art sixth paragraph of the ICC). decisions. You have a supervisory role, not a management role you do not have to pay continuous attention to the affairs of the company, but can rely on the management team to run it and report to you at regular intervals once you are satisfied they are competent. Check what the management team tells you and ensure they are accountable. You should take a diligent interest in the information available and the information you should reasonably be reviewing. If this is not being provided require it to be. Turn up to board meetings whenever practical and organize special meetings if urgent decisions need to be made. On important decisions, or where there are strong reasons to scrutinize a decision, board discussions may not be enough. You may need: a written report from management and the opportunity to question the managers; or an independent report to the board. One measure of care and diligence is the amount of time you spend on board activities. You also need to make sure that you are allocating your time appropriately between issues (eg. strategy and policy/operating and financial performance/reporting and compliance). The merit, opportunity and convenience of the business decisions taken by you and the board are not subject to scrutiny by the courts. However, the decisions which turn out to be wrong, prejudicial or inopportune can be considered by the courts as circumstances, among others, useful to evaluate a possible breach by you of the duties of care and diligence. Court are entitled to challenge the modalities and the process followed to take the business decisions. In particular, while the decision to perform or not to perform an act, or the decision to perform it according to certain modalities or under given circumstances, can not be challenged by the courts, the courts are entitled to challenge the omissions by you of those cautions, verifications or due diligence usually required before taking the relevant business decision. 7

8 10. How much can you delegate and rely on others? Provided that (i) the shareholders meeting or (ii) the by-laws authorize the delegation, the board of directors may delegate its powers to an executive committee composed by some of the members of the board or to one or more directors (Art second paragraph of the ICC). The board of directors determines the content, limits and the modalities to exercise the delegated powers and is always entitled to give instructions to the executive committee and the delegated directors and to claim to itself the transactions delegated. Based upon the information provided by the executive committee and the delegated directors, the board of directors (i) evaluates the adequacy of the organizational, administrative and accounting structure of the company, (ii) reviews the strategic, industrial and financial plans of the company, if prepared, and (iii) evaluates the performance of the company (Art third paragraph of the ICC). The board of directors can not delegate its powers related to the drafting of the financial statements, the increase of the corporate capital, the decrease of the corporate capital for losses, the issuance of convertible bonds, the drafting of the merger/de-merger plans (Art. 2381fourth paragraph of the ICC). The executive committee and the delegated directors control that the organizational, administrative and accounting structure of the company is adequate to the nature and size of the company and report to the board of directors and to the board of statutory auditors, within the time periods set forth in the by-laws and, in any event, at least every six months, about 8 According to certain scholars, the duty of prudence is a component of the duty of diligence and entails that you should not carry out risky transactions. You should seek legal advice whenever you are not sure you are complying with your duties, also considering that the duty to act in an informed way is not clear cut; in particular, it is not clear under the law what is generally an adequate level of information that you should obtain before deciding. It is debated whether the delegation must specify the delegated powers; according to certain case law and scholars a general delegation is null and void. As market practice, the executive committee is usually composed by the most qualified members of the board of directors and the boards of directors delegate its powers to both the executive committee and the delegated directors. It is debated whether, in the event the board of directors claims to itself the transactions delegated without just cause, the delegated director is entitled to damages. The instructions given by the board of directors to the delegated directors are binding. In the event of non-compliance with such instructions, the delegated powers can be revoked and the delegated directors can be sued by resolution of the shareholders meeting of the company upon request by the board of directors. The applicable rules depict a clear-cut distinction between your duties and responsibilities as delegated director (higher duties and responsibilities) and your duties and responsibilities as nondelegated director (lower duties and responsibilities). According to certain scholars, you, as non-delegated directors, have no duty to supervise the general management of the company.

9 11. What is the Business Judgment Rule? 12. What is the position on conflicts of interest? If you: the performance of the company and its foreseeable evolution and about the most relevant transactions (Art. 2381fifth paragraph of the ICC). You have the duty to act in an informed way and may request to the executive committee and the delegated directors that they report to the board of directors the information about the performance of the company (Art. 2381sixth paragraph of the ICC). make your judgment in good faith and for a proper purpose; do not have a material personal interest in the subject matter of the judgment (see section 12 on conflict of interest); are informed to the extent you reasonably believe appropriate; rationally believe the judgment is in the best interest of the company; have taken all the proper procedural steps before making the business decision; then you limit the risk you will be held liable for failing to meet your duty of care and diligence. You must give notice to the other directors and the board of statutory auditors of any interest which you, on your account or on the account of third parties, have in a transaction of the company, specifying the nature, terms, origin and scope; if you are the managing director, you must also refrain from carrying out the transaction (Art first paragraph of the ICC). In the circumstances described in first paragraph, the resolution of the board of directors must adequately explain the reasons and convenience of the transaction for the company (Art second paragraph of the ICC). You can not: (i) be a shareholder without limitation of liability in 9 Your belief that the judgment is in the best interest of the company is deemed to be rational unless the belief is one that no reasonable person in your position would hold. The Business Judgment Rule only applies to a failure to meet the duty of care and diligence on decisions relevant to the business operation of the company. It does not apply to any other breach of your duties, such as to prepare a prospectus which complies with the Italian Financial Law and the relevant regulations. The merit, opportunity and convenience of the business decisions taken by you are not subject to scrutiny by the courts. However, the decisions which turn out to be wrong, prejudicial or inopportune can be considered by the courts as circumstances, among others, useful to evaluate a possible breach by you of the duties of care and diligence. Failure to comply with the provisions in first and second paragraphs or in the case of resolutions of the board or the executive committee passed with the determining vote of the interested director, the resolutions themselves, where they may cause harm to the company, can be challenged by the directors and the board of statutory auditors within 90 days of their dates; the challenge may not be brought by those who voted in favor of the resolution if all the obligations set forth by the law have been complied with. In any case the rights acquired in good faith by third parties on the basis of acts done in execution of the resolution are not prejudiced (Art third paragraph of the ICC). You are liable for the damages incurred by the company for your

10 competing companies; (ii) exercise an activity competing with the company, for your account or for the account of third parties; (iii) be a director or executive of competing companies; except if the shareholders meeting authorized you. If you do not comply with such prohibition,you can be revoked and are liable for damages (Art of the ICC). You are not allowed to disclose confidential information. actions or omissions (Art. 2391fourth paragraph of the ICC). You are also liable for the damages incurred by the company arising from the use, for your benefit or the benefit of third parties, of data, information and business opportunities known in the exercise of your office (Art fifth paragraph of the ICC and Art. 9 of the Code of Conduct). If you breach the above rules on conflicts of interest and certain other circumstances occur, you are liable under criminal law (Art of the ICC). 13. What are your other key duties? You have to carry out the necessary transactions for the implementation of the corporate purpose (Art bis first paragraph of the ICC); you have to pursue the company interest; you have to represent the company (Art of the ICC); you have to call the general shareholders meeting; you have to report to the shareholders meeting; you have to act in an informed way (Art sixth paragraph of the ICC); negative covenants: you can not (i) be a shareholder with unlimited liability in competing companies, (ii) carry out activities in competition with the company, on your account or an the account of third parties, and (iii) be director or general executive in competing companies, unless the shareholders meeting authorized you (Art first paragraph of the ICC); you must adopt rules which ensure the transparency and correctness, from both a substantial and a procedural points of view, of the related parties transactions and must disclose such rules to the market in the annual report (Art bis first paragraph of the ICC and CONSOB Regulation no of 12 March 2010); you must supervise that the executive, who is in charge of preparing the accounting records of the company, has adequate powers and resources to perform the duties entrusted to him; you control, also, the actual compliance with the administrative and accounting procedures (Art. 154-bis fourth paragraph of the Italian Financial Law); 10 Generally, the directors have the duty to manage the company (Art bis of the ICC). However, certain measures require the approval of the shareholders meeting according to the by-laws and/or the law. The shareholders meeting may authorize the execution of certain acts, provided that the directors are liable towards the company for the acts they executed (Art. 2364, first paragraph no. 5 of the ICC). Therefore, the authorization by the shareholders meeting of a certain act executed by you does not strike out your liability. You are entitled to refuse to implement a resolution of the shareholders meeting only if your decision is justified by the fact that you want to avoid a possible responsibility. Company interest: there is not a clear-cut definition. The interest of the company can vary depending on whether the short or long period is taken into account. To act in an informed way: it is not relevant the merit of the business decisions, but the decision-making process (see section 7). As for the related parties transactions, you have to appoint a committee composed in majority by independent directors which need to approve the transaction and you can be advised by independent experts, depending on the nature, value and characteristics of the transaction(art bis first paragraph of the ICC and CONSOB Regulation no of 12 March 2010).

11 14. What do you have to observe with regard to the other corporate bodies of the company? you must call the shareholders meeting immediately if the company realizes losses amounting to a certain level (Artt and 2447 of the ICC); you have to acknowledge promptly and register with the companies register the verification of an event of dissolution of the company (Art of the ICC); you have to manage the company with the only purpose to preserve the integrity and the value of the corporate assets if the corporate capital decreases below the minimum amount set forth by the law (Art of the ICC); you have to draft and file with the companies register the financial statements of the company; you have to draft the financial statements applying the rules of clarity, accuracy and correctness; you have to keep correctly the records/accounting of the company; you have to comply with the tax, social security and criminal rules which govern the management of the company; you have to file for insolvency procedures. There are four corporate bodies in a Italian stock company with a two-tier system (the management board (consiglio di gestione), the supervisory board (consiglio di sorveglianza), the shareholders meeting (assemblea dei soci) and the board of statutory auditors (collegio sindacale)) and three corporate bodies in a Italian stock company with a one-tier system (the board of directors (consiglio di amministrazione), the shareholders meeting (assemblea) and the board of statutory auditors (collegio sindacale)). The management board and the board of directors are responsible for the management (day-to-day business) of the company (Art novies of the ICC). The supervisory board appoints and revokes the members of the management board, approves the financial statements, verifies the compliance with the laws, the by-laws, the rules of correct administration and the adequacy of the organizational, administrative and accounting structure of the company and its actual functioning, promotes the exercise of the action of 11 Issues that need an approval by (all or certain categories of) the shareholders are decisions that have a significant influence on the shareholders rights. You should seek legal advice as soon as a significant measure for the company is planned.

12 responsibility vis-à-vis the members of the management board, files with the court a petition if there are grounded suspects that that members of the management board carried out serious irregularities which could damage the company, reports on its activity to the shareholders meeting at least once a year and, if provided by the by-laws, resolves upon the strategic transactions and the industrial and strategic plans prepared by the management board (Art terdecies of the ICC). Generally, the management board and the board of directors call the shareholders meeting. The shareholders meeting is the corporate body in which the shareholders exercise their rights. It mainly decides on the basic issues of the company (e.g. bylaws, capital increases and decreases, mergers, spin-offs, liquidation). The board of statutory auditors verifies the compliance with the laws, the by-laws, the rules of correct administration and the adequacy of the (i) organizational structure of the company, (ii) internal control, (iii) administrative and accounting system, the modalities of actual implementation of the rules of corporate governance set forth in the codes of conduct which the company states to adhere, the adequacy of the instructions given by the company to its subsidiaries (Art. 149 of the Italian Financial Law). 15. Understand that turning a blind eye may not be enough You, jointly and severally with the other directors, are liable if, being aware of prejudicial facts (also those committed by an employee or a director of the company), did not carry out what you could to prevent the perpetration of the facts or to cancel or limit the harmful consequences (Art second paragraph of the ICC). Such liability for acts or omissions does not affect you if you, without negligence, have registered your dissent without delay in the book of the meetings and resolutions of the board of directors and have immediately informed the Chairman of the board of statutory auditors (Art third paragraph of the ICC). 12 You are exposed to liability vis-à-vis: the company (Art of the ICC) (in the event of bankruptcy of the company a liability action may be exercised by the trustee of the bankruptcy (Art bis of the ICC)); the creditors of the company (Art of the ICC); individual shareholders or third parties (Art of the ICC).

13 According to case law, if you did not attend the meeting of the board which adopted the prejudicial resolution, you are not exempt of liability since you have the duty to examine the minutes of the board meeting to gather more information and to consider the opportunity to formalize in writing your disagreement, pursuant to Art third paragraph of the ICC. 16. Understanding your disclosure obligations as a director of a listed company You must disclose: timely, in accordance with the rules established by the by-laws and at least quarterly, to the board of statutory auditors the activities and transactions of major economic, financial and patrimonial relevance carried out by the company or its subsidiaries. In particular, you must disclose the transactions in which you have an interest, on your account or on the account of third parties, or which could be affected by the entity exercising the activity of direction and coordination of the company (Art. 150 first paragraph of the Italian Financial Law); information in the report on corporate governance, on the application of the article 1 of the Code of Conduct and, in particular, on the number of meetings of the board and executive committee, if any, held during the year and on the percentage of your attendance (Art. 1.C.1. h) of the Code of Conduct); you have to communicate to CONSOB (the Italian Stock & Exchange Authority) and to the company the transactions you, directly or indirectly, carried out on the shares, or other financial instruments linked to the shares, issued by the company within 5 business days of the actual date of the transaction, except for transactions whose aggregate amount in a year is lower than EUR 5,000 (Art. 114 seventh paragraph of the Italian Financial Law and Artt. 152-sexies and ff. of the CONSOB Regulation); if you do not comply with such disclosure obligation, you are subject to a fine from EUR 5,000 to EUR 500,000 (Art. 193 of the Italian Financial Law); your interest in any contract which may give rise to such an 13 The Board strives to provide timely and easy access to information concerning the company. To this end, the company shall establish a special section on its website, easily identifiable and accessible, where all relevant information are made available (Art. 11.C.1. of the Code of Conduct).

14 interest. 17. Understanding what the company must do to comply with its statutory obligations Mandatory corporate books (Art of the ICC); preparation by the directors of the draft of the financial statements to be approved by the shareholders meeting; make available to the public the annual financial report (Art. 154-ter of the Italian Financial Law); the preparation of disclosure documents in specific circumstances, for example when your company offers securities or makes a takeover bid (Art. 94 of the Italian Financial Law and Artt. 102 and ff. of the Italian Financial Law). In fulfilling your duties, you are civilly (Artt of the ICC) and criminally (Artt and ff. of the ICC) liable. 18. Understand your potential liability under other acts and the systems adopted by your company to minimize breaches Tax. Directors may be personally liable for a tax offence committed by the company. Examples of offences include failing to lodge a tax return, making a false or misleading statements, incorrectly keeping accounts and failing to remit amounts withheld from salary. Environmental. Directors may be personally liable for environmental offences committed by the company. Example of offences include air, water, noise and land pollution, failing to comply with environmental approvals, failing to comply with remediation orders and acting without consent. Occupational Health & Safety. Directors of a company are deemed to be in breach if the company breaches its obligations relating to the health, safety and welfare of persons working for them on their premises. Examples of obligations include duties to ensure: premises and equipment or substances used are safe and 14 The liability for the actions and the omissions of the directors does not extend to you if you, without negligence and without delay, have declared, your disagreement in the book of meeting and in the book of the resolutions of the board and have given immediate note, in writing, of your disagreement, to the Chairman of the board of statutory auditors (Art third paragraph of the ICC). The shareholders can sue you if (i) you have not adopted or have not effectively implemented the Model and (ii) the company is condemned to pay a sum for certain crimes committed by the company s representatives (without having the opportunity to benefit of the safe harbor).

15 without risk to health; there is a safe system of work and working environment; information, training and supervision necessary to ensure employees health and safety are provided; facilities adequate for employees welfare are provided. You should adopt and effectively enforce a organizational and governance model aimed at preventing the execution of certain crimes by the company s representatives (the Model) and should appoint a committee (organismo di vigilanza) in charge of supervising the compliance with the Model (Italian legislative decree 8 June 2001, no. 231). The adoption and actual enforcement of such model provides the company with a safe harbor if one or more crimes indicated in same law is actually committed by a company s representative, it being understood that the lack of the model does not expose the company per se to any sanction. The adoption of the Model is mandatory for companies listed on certain segments of the Italian stock exchange. Special Circumstances 19. What is the position if the company may be insolvent? You should appoint the committee for internal control (Art. 8 of the Code of Conduct). If the corporate capital is decreased by more than one third due to the losses realized by the company, you have to call immediately the shareholders meeting and you have to prepare a report on the patrimonial situation of the company, to be filed with the company registered office 8 days before the shareholders meeting. During the shareholders meeting you have to present the relevant facts occurred after the date of the report. If within the next financial year the losses are not reduced to less than one third of the corporate capital and the shareholders do not resolve to decrease the corporate capital proportionally to the losses, you have to request the court to decrease the corporate capital (Art of the ICC). If, due to the losses amounting to more than one third of the corporate capital, the corporate capital is decreased to an amount lower than the minimum amount set forth by the law, you have to call immediately the shareholders meeting to resolve upon the decrease of the corporate capital and, simultaneously, (i) the increase of the corporate capital to an 15 Your obligation to call the shareholders meeting arises when you are aware that the capital is decreased. Given that a listed company has to prepare quarterly accounts, you are supposed to be aware about the decrease when the quarterly accounts are available. If the corporate capital decreases below the minimum amount set forth by the law, you have the duty to keep managing the company but the scope of such management is confined to preserve the company assets and not anymore to purse the corporate purpose. Generally, you should request legal advice to protect yourself against personal liability. Insolvency (stato di insolvenza) means the breaches by the company or other facts evidencing that the company is not anymore able to fulfill regularly its obligations (Art. 5 of the Italian bankruptcy law no. 267/1942). According to the majority

16 amount not lower than the minimum amount set forth by the law or (ii) the change of the corporate form (Art of the ICC). of case law, the insolvency is determined by the lack of current liquidity. When the losses realized by the company have decreased the corporate capital below the minimum amount set forth by the law, the company must be dissolved and you have to file with the company register a statement acknowledging such event (Art of the ICC). Starting from the decrease of the corporate capital below the minimum amount set forth by the law, you can still manage the company but with the only purpose to preserve the integrity and the value of the corporate assets. You are personally, and jointly with other directors, liable for the damages occurred to the company, the shareholders, the creditors of the company and third parties due to acts or omissions which do not comply with such duty (Art of the ICC). If the company is insolvent (stato di insolvenza) you have to file for insolvency (Art. 5 of the Italian bankruptcy law no. 267/1942). In the event of bankruptcy, the trustee of the bankruptcy is entitled to sue you for damages occurred to the company (Art bis first paragraph of the ICC; Art. 146 of the bankruptcy law 15 March 1942, No. 267). Besides, depending on the actual circumstances, you may also be liable under criminal law. 20. What special responsibilities and liabilities are associated with a float? The prospectus to be prepared in connection with a float is signed by the issuer and by its managing director or Chairman of the board of directors. Often, a resolution of the board of directors authorizes the publication of the prospectus. The directors who signed the prospectus are liable if the prospectus includes wrong or incomplete information. The 16 Due diligence defense: if the directors who signed the prospectus prove that they have duly carried out the due diligence exercise, they are not liable.

17 other directors (who did not sign the prospectus) can still be held liable. However, while the directors who signed the prospectus are presumed negligent, the directors who did not sign the prospectus are not presumed negligent and, therefore, it will be necessary to prove their negligence and the actual or constructive knowledge of the incompleteness or inaccuracy of the information contained in the prospectus. 21. What special responsibilities and liabilities are associated with a takeover?(artt. 101-bis and ff. of the Italian Financial Law and Consob s Regulation No ) Takeovers of listed companies are subject to complex rules which impose obligations on bidder and target companies and their directors. Some key issues for directors include the following: If you are a director of a bidder company: whether the bid is in the best interest of the company; whether the bidder's statement contains all required information, including all information that is material to a shareholder of the target in making an informed decision whether to accept the bid; If you are a director of a target company: whether to recommend the acceptance of the bid; whether you have considered alternative offers or transactions; whether the target statement includes all information that shareholders and their advisers reasonably require in order to make an informed assessment on whether to accept the offer; whether the press release of the board of directors of the target company contains all relevant information for the appreciation of the offer and the evaluation of the bid (Art. 103 third paragraph of the Italian Financial Law). The board of directors of a potential bidder should seek legal advice at an early stage in considering any takeover, and the board of directors of a target company should seek advice immediately on becoming aware of a potential takeover. 22. What special responsibilities and liabilities are associated with a joint venture? Even in a joint venture company you have a duty to act in the best interest of the company as a whole. You: must not represent particular sectional interest such as the shareholder who appointed you to the board; are not accountable to any interest group - such as a 17 Be particularly aware of situation which may give rise to conflicts of interest (see section 10). Be aware of your duty not to act in a way which is oppressive or unfairly discriminatory to a shareholder or constitutes a fraud on a minority.

18 nominating shareholder. Self Defence 23. Good corporate governance processes The risk of liability arising is minimized if the company has good corporate governance processes in place, that allow a continuous exchange of information between different corporate bodies. At a minimum: the structure and composition of the board should be appropriate; the function and roles of the board and its members should be clear; the information systems should be adequate; the processes and practices should be appropriate. Structure and composition: consider issues such as the size of the board, its mix of skills, the proportion of executives and independents and committee structures (for example: is it appropriate to have an audit committee, a compliance or due diligence committee, a remuneration committee?). Function and roles: the principle tasks of the board, the level of the board s involvement (as opposed to management involvement), appropriate time allocations for tasks, and the relationship with the management team should be clearly understood and responsibility for due diligence recorded. Processes and practices: meeting practices, decision-making mechanisms, reporting lines and processes for directors performance evaluation should be clearly understood. Information system: format for report and minutes, mechanisms for directors access to information and key performance indicators should be clearly defined. 24. Indemnities Make sure that the company: indemnifies you for liabilities you incur as a result of your position as a director; agrees to keep insurance in place for your directors (and officers, if applicable) liability while you are a director and after you resign; agrees to give you access to the company s records while you are a director and after you resign for the purposes of defending yourself in proceedings. It is debated whether a general undertaking of the company to indemnify and hold you harmless for the activities you carry out as director of the company is valid and effective. On the contrary, a specific undertaking expressly listing the activities within the scope of the indemnity is valid and effective. The validity and effectiveness of a waiver by the company to start a liability action vis-à-vis you is debated. According to certain case law and authors, these waivers are invalid and ineffective tout court. Pursuant to other case law and scholars, only general waivers are invalid and ineffective, while specific waivers expressly listing the activities within the scope of the indemnity are valid and effective. Furthermore, according to other case law and scholars, only the waivers re liability actions related to obligations which are imposed to the director in the interest of 18

19 third parties, or related to willful misconduct or gross negligence, are invalid and ineffective. 25. Insurance A directors and officers (D&O) insurance can protect you from liability. Such insurance can be entered into by you personally and/or by the company (or by the parent company). In the latter case, the company is allowed to pay the premiums as part of your remuneration. Review the directors and officers liability insurance policy (both the company insurance policy and the group insurance policy, so called umbrella insurance policy) and make sure it/they cover(s) you for all the position you hold in the company/group and for liability after you have resigned. Understand the exclusions, thresholds, deductibles, and caps. It is debated which is the corporate body competent to decide to enter into a D&O insurance. According to the prevailing opinion, in companies which have a one-tier system, the shareholder meeting is competent, while in companies which have a two-tier system, the supervisory board is competent. Most insurance policies are on a claims made basis. It means that you will obtain cover if the policy is in force when the claim giving rise to the liability is actually made as opposed to when the act giving rise to the liability occurred. Consequently, it is key to ensure that insurance remains in place 5 years after you ceased consider that (i) a law-suit may be brought by the company against you within 5 years of the termination of your role as director (Art fourth paragraph of the ICC) and (ii) a lawsuit may be brought by a shareholder or a third party within 5 years of the execution of the act which caused harm to the shareholder or the third party (Art second paragraph of the ICC). The insurance industry provides for different types of insurance policy for directors, so for more information and details refer to the specific insurance policy. 26. How do I resign? You can resign by giving written notice to the board of directors and to the Chairman of the board of statutory auditors (Art first paragraph of the ICC). Within 30 days the board of statutory auditors must register the termination of your office in the companies register. Your resignations take effect immediately if the majority of the directors remains in charge or, in the negative, from the date in which the majority of the board is established again further to the acceptance of the new directors (Art first paragraph of the ICC). 19